COVID-19 Lease Variations- How to document it properly
By Phillip Leaman
21 July 2020
We have written several blogs about commercial leases and licences and the impact COVID-19 has had on them and what the Government has done to try and get landlords and tenants to come to a sensible solution in dealing with the effects on both.
For those of you who have missed our earlier blogs check out:
- Our blog on the Covid-19 Omnibus (Emergence Measures) (Commercial Leases and Licences) Regulations 2020 (“the Regulations”) and how they apply to landlords and tenants at http://tlfc.com.au/covid-19-regulations/;
- For our blog on the COVID-19 Omnibus (Emergency Measures) Act 2020 and to find out what is an “Eligible Lease”, see our earlier blog at http://tlfc.com.au/covid-19-lease-legislation/
- For details about the Federal Government’s COVID 19 Mandatory Code for Leases (National Cabinet Mandatory Code of Conduct SME Commercial Leasing Principles During COVID-19) (“the Code” for short) see our earlier blog here. Note that the Code has not been fully endorsed by the Victorian Parliament and you should read the below for more clarity.
What Information can a Landlord seek from a Tenant when considering rent relief?
The most frequent area of dispute is what information should be provided by the tenant and what happens if the tenant has voluntarily ceased operating their business. An example of this is a takeaway shop that decides to close voluntarily because of concern to the health and safety of its employees rather because of a government direction. We now have guidance from the Office of Small Business Commissioner as to what information a landlord should and should not ask for. According to the SBC:
A landlord can ask the tenant for information:
- extracted from an accounting system
- extracted from BAS
- provided to a financial institution.
A landlord should not:
- request future cash flow projections
- request balance sheets, profit and loss or year to date financials
- request the tenant’s bank balance
- require the financial information to be verified, examined, assured, audited or provided by a third party such as an accountant
- require an accountant to provide a letter of comfort or similar on the financial information
- request financial information for periods other than the ‘relevant period’ (i.e. the period nominated by the tenant as the period for a reduction in turnover).
Further, the Office of Small Business Commissioner considers that there should be no distinction between a business which shuts down due to a government prohibition (such as a gym) compared to one that shuts down due to the general government restrictions (i.e. voluntary shut down for health and safety reasons.
What happens if an agreement cannot be reached?
Whilst it is hoped that landlords and tenants will reach an agreement, if parties cannot reach agreement either party can seek mediation at the Office of the Small Business Commissioner. The process is simple and cost effective.
What happens when the Landlord and Tenant reaches an agreement?
If agreement is reached, it is critical that the parties enter into a formal agreement to document the arrangement. This ensures that if there is a change in tenant (due to a transfer of the business) or a change in the landlord (due to the sale of the land) that it is clear what the terms of the agreement are. Even if there is no proposed short term change, it is important to formally document the arrangement to ensure that the parties are clear on the agreement reached. All too often we see disputes arise because there is a chain of correspondence setting out negotiations for a variation and it is unclear what agreement was actually reached.
How do I document the agreement?
There are two options:
- Use our online Documents 24/7 Service.Prepare your own document using our online COVID-19 Variation of Lease Deed chatbot for a fixed price, contact free. It is available 24 hours a day online at tlfc.com.au/documents247 or at www.tlfc.com.au/online-covid-19-variation-lease-deed/ and is a self-serve service. You pay for your document using our secure credit card facilities, enter all the relevant information and within 1 business day receive your customised COVID-19 Variation of Lease Deed fully formatted and ready to sign with no fuss. No talking to a lawyer required. The document has been prepared by Tisher Liner FC Law and will cover most standard situations arising from COVID-19, fully complies with the Regulations and will customise depending on the answers given in the online chatbot.
- You can also download our free COVID-19 Variation of Lease Checklist which allows you to work out the information needed to prepare the variation of lease document before you start your online document. Whilst you are there, you can also obtain our online Confidentiality Agreements, Company Power of Attorneys, Individual Power of Attorneys and Medical Treatment Decision Makers. Those documents are available 24 hours a day, 7 days a week and once you complete the chatbot, the document is delivered to you in less than 5 minutes to your email address.
- Use our traditional legal services. For more complicated variations of lease, where you need a document to deal with variations beyond rent relief and issues arising from COVID, contact Phillip Leaman so we can prepare for you a customised variation of lease that documents the agreement between the parties. We can also provide you advice and guidance on your rights and obligations and assist with negotiations with the tenant or landlord;
What if I don’t document it correctly?
The problem with an agreement by correspondence is that unless there is a clear agreement reached, a dispute is likely to ensue when Covid-19 ends or there is a change in the Tenant or Landlord. Any dispute is likely to cost substantially more than the cost of documenting the variation correctly now.
What if I am a Commercial Estate Agent acting for Landlords?
If you are an estate agent acting for landlords, we can provide you with access to a bulk discount on our online COVID-19 Variation of Lease Deed when ordering more than 50 deeds. Please contact Phillip Leaman for details on pricing. We can also provide a customised online document version co-branded with your agency details that you can provide to clients. Agents need to be careful that agreements are documented to avoid a costly professional negligence claim being made in the event a dispute arises between the landlord and the tenant in the future, where the landlord argues that the agent did not adequately document the variation.
What if I need advice?
If you need advice or assistance with negotiations or have a complicated variation to document, please contact Phillip Leaman.
Meanwhile, stay safe and be kind to each other. We are in this together.